Fed expands Main Street Lending Program; ECB unveils low-rate loans

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Widening Main Street

The Federal Reserve expanded the rules for its upcoming $600 billion Main Street Lending Program for small and midsize businesses. The program, announced earlier last month and expected to kick off soon, “will now allow larger businesses to participate in the program, and it will relax minimum loan amounts to help more small businesses,” the Wall Street Journal said. “Unlike loans under the Small Business Administration’s Paycheck Protection Program, these must be repaid, but payments can be deferred in their first year.”

“Under the program, businesses can solicit loans of up to four years from banks at below-market rates. Businesses with up to 15,000 employees and $5 billion in annual revenue in 2019 are now eligible, up from earlier limits of 10,000 employees and $2.5 billion in revenue. The minimum loan size will also decline to $500,000, from $1 million. On Thursday, the Fed said it would create a third option for firms with higher debt loads. Under that program, banks will have to maintain a larger 15% stake in the debt sold to the Fed.” Wall Street Journal, Financial Times

However, the Journal writes in an editorial that the Fed’s changes are “mainly window dressing. The Fed did nothing to address the obstacles in the original term sheet, [which] include double-barreled loan covenants from the Fed and the lending bank. The loan must have a ‘pass’ rating from financial regulators, which is the highest rating. Banks must keep 5% or 15% of the loan on their books, depending on the type of loan, which means they’ll apply their normal covenants. But if banks are going to treat these loans as routine, their incentive is to lend only to the best customers without the Fed and keep 100% on the books.”

Fed Chair Jerome H. Powell said he expected the program to be operational “fairly quickly.”

Low-rate loans

The European Central Bank said Thursday it will offer four-year loans to eurozone banks at an interest rate as low as minus 1% as the region’s economy “shrank at an annualized pace of 14.4% in the first three months of the year, the fastest pace on record. That by far exceeds the 4.8% drop recorded in the U.S. economy over the same period. ECB President Christine Lagarde warned that the eurozone economy could shrink by as much as 12% this year and that the shape of any recovery was highly uncertain.” Wall Street Journal, Financial Times

Wall Street Journal

Visa improves

Visa said profits for its second fiscal quarter rose to $3.08 billion despite a downturn in business in the second half of March. Revenue rose 7% to $5.85 billion as payments volume, adjusted for foreign-currency fluctuations, rose 5%.

Honest mistake

The Treasury Department’s Office of Foreign Assets Control (OFAC) said an American Express subsidiary “mistakenly issued a prepaid card to a German engineer with alleged ties to a black market in nuclear-weapons technology,” but the company avoided a fine. Amex “provided the card to Gerhard Wisser, whom U.S. authorities have accused of playing a role in a group run by Abdul Qadeer Khan, sometimes referred to as the father of Pakistan’s nuclear program.”

“In determining its enforcement action, the Treasury concluded that there was no willful or reckless behavior on AmEx’s part, that the company had cooperated with OFAC’s investigation and that it had taken steps to prevent any further violations. The case highlighted the importance of ensuring that automated compliance controls not be overridden without appropriate review, OFAC said.”

Financial Times

Symbolic dissent

Just 71% of Goldman Sachs stockholders approved the bank’s decision to reward David Solomon a 20% pay raise for his first full year as CEO, “the lowest endorsement since 2016 and a sharp rebuke from shareholders frustrated with years of subpar returns and worried about an impending recession.” Solomon was rewarded with a $27.5 million pay package.

“The bank’s returns have lagged rivals for much of the last five years, but Goldman argued that 2019 was a year of transition and Solomon had made important progress on delivering a three-year strategic plan that will lift Goldman’s results.”

Elsewhere

PPP report

JPMorgan Chase and Bank of America said Thursday “that they submitted almost half a million applications worth nearly $46 billion to the Small Business Administration’s Paycheck Protection Program for small businesses,” Reuters reported. But “so far, fewer than 30,000 loan applications in total from both banks have been approved by the SBA, the banks said.”

“Bank of America, which submitted 250,000 applications totaling $28 billion, said its average loan size was around $100,000 and that three-quarters of applications came from businesses with fewer than 10 employees. JPMorgan, which submitted about 220,000 applications worth $17.8 billion, said its average loan size was around $81,000. Roughly half of the applications were filed by businesses with fewer than five employees, a bank spokeswoman said. About 40% of JPMorgan’s applications were for less than $25,000.”

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